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Get ahead of the slow-moving loan-mod train

Job-loss figures may be trending down, but 85,000 people still were sent packing in December, and more are likely to find themselves out of work in the months ahead as the economy continues to try to right itself.

If you’re a homeowner who was laid off recently, if you even think there’s a chance your job might be eliminated, or if you are still working but having a difficult time making ends meet, the best thing you can do for yourself and your family is to determine whether you are eligible for mortgage relief.

If so, you should waste no time in getting together the paperwork necessary to prove to your lender that you deserve to have your loan modified.

Actually, getting RIFed workers started on the road to saving their homes is something employers should be doing for their employees, over and above any buyout packages and severance payments they may or may not offer. Many already are partnering with employment agencies and recruitment firms to help their former employees find work. So why not help them keep the roofs over their heads? Such aid could easily become the hottest new fringe benefit.

Until that happens, though, you’re pretty much on your own. Here’s how to get started:

Understand your eligibility. Familiarize yourself with the Obama administration’s Making Home Affordable Program, also known as HAMP. They are one in the same so don’t get confused by the different handles. The terms are used interchangeably.

You can read up on the program at makinghomeaffordable.gov. But the key to eligibility is your front end debt-to-income ratio. That is, the total of your principal, interest, taxes, insurance and homeowners or condominium-association dues must be greater than 31 percent of your gross household income.

If it is, you should be eligible for a loan modification. But you’ll have to call your lender or servicer — the company that collects the payments on behalf of the loan’s owner — to determine if it is participating in the White House program. Supposedly, servicers handling some 80 percent of all mortgages are taking part.

If you are eligible, it is possible to obtain a loan mod even if you are still current on your house payments. But if you are not eligible for HAMP — that is, your income is too high — you still may be eligible for a more traditional solution, such as forbearance for a few months until you get back on your feet.

Unfortunately, according to David Bartels, president of US Home Loan Advocates, a Westlake Village, Calif., company that offers mortgage-modification services, your lender/servicer is not likely to want to deal with you until you are in default or in imminent danger of defaulting.

Default is different from delinquent. You are not in default until you miss three consecutive payments.

Under the Obama plan, your loan’s interest rate will be reduced in 0.125 percent increments until your payment reaches the 31 percent debt-to-income target. If the rate drops to 2 percent and you still haven’t hit the target, the term of your loan will be increased in 10-month increments until the goal is met. If the term reaches 480 months and still no success, the servicer will start reducing your outstanding principal.

But Bartels cautions that lenders will consider other factors apart from your housing debt-to-income ratio. Also on the table will be your total debt to income, cash flow and the equity you have in your property at its current value. All of these things “must line up and meet the bank’s requirements to obtain a modification,” he said.

Once you have a feel for your options, find out if your servicer is a participant in the administration’s program. You can check various Web sites, such as yourmortgagerights.com/5.html. But it is best to call your lender to confirm its involvement.

Your lender should send a package of documents for you to complete and return. But don’t wait — it could take several weeks to receive the package — to gather the paperwork that will be required to support your request. There are at least two-dozen forms to fill out, so start now to assemble:

• Your most recent mortgage statement.

• Pay stubs for the previous two months.

• At least two consecutive checking-account statements.

• Your latest tax return — 2008 (if you have not yet filed for 2009).

• An itemized list of your expenses.

• Utility bills for the most recent month.

• A hardship letter explaining why you need help.

According to Marcia Griffin, president of HomeFree-USA, a Hyattsville, Md., firm that specializes in homeownership counseling and foreclosure intervention, the all-important letter must answer these key questions:

• Why are you having difficulty paying your mortgage?

• What are you doing to remain current or bring the loan current?

• How long have you lived in your home?

• Do you want to keep your home?

• What do you want your lender to do?

The best way to succeed is by submitting a properly completed application with all the required supporting documentation, so prepare your package carefully.

You must show that you will struggle to make your current payment but will be able to make a lower, more affordable one.

Don’t fib to make it seem as though your situation is worse than it really is, though. For example, if you show negative cash flow, your application will be denied, period.

“Getting a loan modified has nothing to do with being a good negotiator,” said Bartels, whose US Home Loan Advocates, unlike many of those that have been chastised by the Federal Trade Commission, charges no up-front fees.

“The bank is going to make a decision based on the math. If the bank will make more money by modifying versus foreclosing, it will modify it.”

Before you return the package, make sure that your name and loan number is on every single page, and make copies of each and every document.

Michael Young, vice chairman of the Mortgage Bankers Association, said that 99 percent of the packages returned to servicers are either missing documents or contain mistakes.

But Bartels and many borrowers who have been trying to get their loans modified for months maintain that lenders lose their paperwork with shocking regularity.

Call the bank two weeks after you’ve return the package to make sure that it has been received. If it hasn’t, send another. “It is not unusual to have to submit the package multiple times,” Bartels warns.

You must be your own advocate. That means calling every two weeks or so to find out the status of your application. Don’t wait for the bank to call you. Each time you speak with someone, write down the person’s name, phone number and extension, company identification number, the day and time you spoke, and your recollection of what was said.

It will take most lenders 60 days after they receive a completed package to make a decision, and you most likely will have to submit updated information as the process moves slowly along. So keep calling until you receive a decision.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance-industry publications.

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